Kelly Company issued $100,000 of 5%, 10-year bonds at 102 to a single investor. Each of the $1,000 bonds was convertible into 100 shares of no par common stock. The bonds were later converted when the remaining unamortized premium was $1,000. What is the amount that Kelly will credit to Common Stock when recording the conversion of the bonds?

Question

Jason Sloan

Business

27 July, 01:10

Kelly Company issued $100,000 of 5%, 10-year bonds at 102 to a single investor. Each of the $1,000 bonds was convertible into 100 shares of no par common stock. The bonds were later converted when the remaining unamortized premium was $1,000. What is the amount that Kelly will credit to Common Stock when recording the conversion of the bonds?

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Marissa Roman · Answer 1

The amount credited to common stock upon conversion of the bonds is $101000

Explanation:

When the bond was issued there would been a debit of $102000 ($100000*$102/$100) to cash account and credit of $102000 to liabilities split into $100000 bonds payable and $2000 bond premium.

However, on conversion to common stock with premium of $1000 outstanding in the books, the amount to be credited into common stock account is the issue value less outstanding premium.

The amount credited to common stock=$102000-$1000=$101000

This can be shown with entries below:

Dr Bond payable $100000

Dr Bond premium $1000

Cr Common stock $101000